I have talked at length about the potential for Web 3.0. Today, we will look at a company that is doing well as a web 1.0 company, but can take its business a great deal further if it applied web 3.0 principles. SheetMusicPlus.com, located in Emeryville, CA, is the world’s largest online retailer of sheet music. In today’s digital era, this company supplies a paper product and is profitable even in the current poor economy. The site offers music from over 1,000 publishers spanning a multitude of music genres from the most specialized to the most popular for all types of musicians, teachers, and instruments. Its breadth of offerings ranges from classical to country, vaudeville to gypsy jazz and more. Clearly, an excellent identification of context.

Sheet Music Plus’s products are available exclusively online, and the company has a 25,000 square foot warehouse where it stocks its products. Accessible to customers around the world, the sheet music is shipped at affordable fees. Of the 40 employees at Sheet Music Plus, around 60% have studied music themselves and are a valuable source of information for customers, who can use the product descriptions, reviews, and evaluations on the site.

Sheet Music Plus was founded in 1996 by Nick Babchuk, who held the title of CEO till 2008 before stepping down and taking over as chairman. Nick also co-founded MusicianStore.com, the private equity firm Sverica International, and its predecessor, Sverica Partners. Since his youth, Babchuk has a keen interest in musical instruments, and he used to refurbish instruments to resell to buyers. He also plays the trumpet, baritone, trombone, marimba, drums, and classical guitar. Babchuk used his knowledge about sheet music to model the company around the same concept as Amazon but with a singular focus. When the company was founded, there were very few online retailers, even fewer of which were profitable. Sheet Music Plus was originally funded by Babchuk and a few angel investors. The company has been profitable from the beginning and was self-financed until the buy-in by private equity firm Sverica in 2007.

Keith Cerny became CEO of Sheet Music Plus in 2008, combining his business and music experience. Prior to joining Sheet Music Plus, Cerny was an executive director with Russell Reynolds Associates, executive director (COO) and CFO of the San Francisco Opera, and held consulting management positions at Accenture and McKinsey & Co. An active conductor and concert pianist, Keith has consulted for several organizations such as the Houston Grand Opera, the Spoleto Festival USA in Charleston, the San Francisco Opera, the Washington National Opera, the Los Angeles Opera, the Portland Opera, and the Atlanta Opera.

The sheet music market is a $1.1 billion industry, and Sheet Music Plus is at $25 million today, and growing. The company purchases music from leading publishers such as Hal Leonard and Alfred Publishing, and then ships the music to its customers. The publishers buy the music rights for movie soundtracks and Disney scores from the companies and sell the music to Sheet Music Plus, who in turn makes it available on its site. It funds its operations from the margin on the sale to the end customer. Sheet Music Plus just crossed the $25 million mark in revenue. From $19.4 million in 2006 to now, the company has seen an almost 30% increase in revenue.

Sheet Music Plus obviously faces competition from other sites on which sheet music is available. But none of these have as comprehensive a title list as Sheet Music Plus that has over 555,000 titles available (100,000 new ones added in the past 18 months). Other e-tailers such as Amazon are also part of the competition, but their focus is not singular like Sheet Music Plus. The company believes that its closest competitor offers less than half the number of its titles. Before customers went online to buy sheet music, business flowed through retail, specialty stores. The drawback of that model is that stores could only carry 1,000-2,000 titles in stock. Even Sheet Music Plus, a giant in the industry can hold only approximately 22,000 titles in its inventory and orders out the rest as per requirement. Sheet Music Plus’ end product differs from the competition by its final presentation. The sheet music is given to the customer in a well bound format, with high quality editorial and photographs. Although customers could print out the sheet they required from a competing website, they would not have the high quality end product.

Sheet Music Plus’s target market is made up of individuals and institutions such as churches, choirs, schools, and libraries, both in the United States and abroad. Over 75% of sales are from the US, with the remaining 25% sold to over 170 countries. The top three international markets are Australia, the UK and Canada. The company is growing around 40% internationally each year. International shipping rates range from $5-$30+, based on how quickly the customer requires the product. On average, it has almost 2 million unique visitors and around 50,000 orders every month and ships 2,000-5,000 orders daily. There are approximately 600,000-700,000 active musicians registered on the site, encompassing different genres, of which 40% are classical musicians. The company advertises extensively through a pay-per-click (PPC) program with Google, Yahoo!, and Bing, as well as some musician-oriented print publications.

The company currently operates in the Web 1.0 structure, as a pure e-commerce site. It upgraded and re-launched its site in May, and now uses Ruby on Rails technology, SOLR for onsite search, and Radiant Content Management System. These upgrades help Sheet Music Plus to both update the site’s catalog presentation and respond to customers more rapidly. Since the re-launch in May, growth has increased 5% and the company has sold over 250,000 orders using the new platform. But I think that Sheet Music Plus has far more potential and would be much higher growth if it operated within a Web 3.0 framework. Like other verticals – travel, real estate and others – that I’ve explored on the site before, the music vertical has tremendous opportunity for content, community, commerce, personalization, and vertical search to come together and offer a significantly enhanced user experience. There are also many opportunities for creating subscription based services for teachers to find students, or musicians to find gigs. Its ‘teacher rebate program’ with over 18,000 teachers registered on the site is a good first step in moving in this direction.

Cerny feels that the company is still in a growth phase, and he does not anticipate an exit yet. He believes that when the time is right, the company will be an attractive acquisition for a strategic buyer, Internet property aggregator, or private equity firm.

I see, however, the potential for building a $100 million company rather rapidly.